Gold price will bounce back after central banks flood markets - State Street Global Advisors
George Milling-Stanley, chief gold strategist at State Street Global Advisors
(Kitco News) - Gold prices are back above $1,500 an ounce and the question some analysts are asking is if investors finally understand gold ’s role as a safe-haven asset.
Investors have been disappointed with gold ’s performance, falling alongside equity markets; however, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that investors have the wrong perspective on gold.
“The benefit of having gold is that it is an incredibly liquid asset,” Milling-Stanley said in a telephone interview with Kitco News. “Gold is doing exactly what it ’s supposed to do in a liquidity crisis.”
Tuesday, gold prices pushed back above $1,500 to be relatively unchanged on the year; April gold futures last traded at $1,523 an ounce. By comparison, equity markets are in deep bear market territory. The S&P 500 Index is down nearly 23% year-to-date.
While equities and gold could go lower in the near-term, Milling-Stanley said that investors should look for the long-term potential.
History is also on gold ’s side as Milling-Stanley said gold has outperformed other markets following a crisis. He noted that 2008 was the latest example as prices declined about 20% in 2008 and then went on to hit an all-time high three years later.
“Investors need to ignore all the noise currently in the marketplace,” he said. “Gold will bounce back as central bank money floods into financial markets.”
Milling-Stanley made the comments before the Federal Reserve cut interest rates to a target between 0% and 0.25% in an emergency move on Sunday. The Federal Reserve also announced $700 billion in new quantitative easing measures.
Tuesday, the U.S. central bank pumped even more liquidity into the system after it announced that it would reinstate its Commercial Paper Funding Facility. Through the program, the Federal Reserve will be able to circumvent banks and get liquidity straight to ailing businesses. With the new measures, the U.S. central bank can buy commercial paper from issuers directly.
Milling-Stanley said that looking past the coronavirus-induced panic in the marketplace reveals plenty of reasons why gold was above $1,600 an ounce. He added that once the panic is over, gold should resume its uptrend because of massive deficits and extremely loose monetary policies. In this environment, Milling-Stanley said that gold will not only shine as a safe-haven asset but it will be an important global currency.
“Deficits around the world are only going to get bigger and currency depreciation is what investors and markets should be looking at,” he said. “The debt situation is only going to get much worse in the U.S. alone.”
Milling-Stanley added that not only does he expect private sector investment demand to remain strong, but he also sees central banks continuing to increase their gold reserves.
“With treasury yields so low, central banks will be looking to diversify away from the U.S. and I expect that they will turn to gold,” he said.